Author: Max Tomlin

Tecnoglass continues to push innovatory boundaries in the glass industry

Posted on by Max Tomlin

Planet Earth will be home to more than 9.7 billion people by 2050, following a population jump of 2.8 billion in the past four decades alone. As the global population continues to swell, we are now witnessing the growth of ‘megacities’ – sprawling urban centres with more than 10 million inhabitants – with 33 in existence as of 2018, according to the UN’s World Urbanisation Prospects: The 2018 Revision report. According to the UN, 68 percent of the world’s population will be living in urban areas by 2050, with megacities becoming an increasingly common geographical feature. This rapid urban growth will bring increased demand for housing, workspaces and infrastructure, inevitably resulting in the mass construction of new builds across the globe.

Being able to diversify our activity, from an asset perspective, by penetrating the residential market will help us mitigate downcycles

Urbanisation presents a unique set of challenges and opportunities for the global construction industry. With the world’s 20 largest cities currently accounting for over 80 percent of the planet’s energy consumption, there is a pressing need to make our urban spaces more sustainable. Fortunately, the buildings sector has been diligently developing innovative products and exciting new technologies to significantly reduce both consumption and emissions, signalling a new, sustainable era for the global construction industry.

In addition to incorporating energy-efficient solutions, it is imperative that new builds are secure and safe for their future inhabitants. From the devastating wildfires across Greece to the recent flooding in Japan, the extreme weather events of the past year have served as a reminder of the importance of secure, reliable housing. Innovative products such as impact-resistant windows for hurricane-prone areas and low-emissivity (low-e) glass offer crucial protection in at-risk areas, and are increasingly considered an essential element of new builds in such locations. World Finance spoke with Santiago Giraldo, CFO of Tecnoglass, about these promising developments within the industry.

Which trends are currently driving growth in the glass products market?
The construction glass market is currently growing at an impressive rate – it was valued at $83bn in 2016 and it is expected to reach $110.9bn by 2021. The principal factors driving this growth are the demands for energy-efficient buildings and increasing environmental regulations, which are both stimulating significant advances in the industry. Interestingly, the Americas accounted for 19.9 percent of this growth, exhibiting a boom in residential construction projects, hotels and commercial building projects. In the US, we are also noticing increased demand for impact-resistant building materials in hurricane-prone costal states, in addition to new regulations concerning building structures in high-exposure regions.

33

Number of megacities in the world in 2018

9.7bn

Predicted global population by 2050

68%

Predicted percentage of global population living in cities by 2050

Energy-efficient windows are also a major trend at the moment, as they reduce energy needs in buildings while increasing the natural light and visibility of homes and offices. At Tecnoglass, we have focused on investing in research and development (R&D) in order to respond positively to these evolving trends. Our hurricane-resistant glass has earned the company the prestigious Miami-Dade Notice of Acceptance, while our innovative low-e coatings are helping clients to cut energy costs by limiting heat transmission.

How are sustainability concerns shaking up the glass industry, and why are these trends important to consider?
As sustainability becomes an increasingly pressing concern for our industry, companies are investing heavily in R&D so as to meet both evolving consumer demands and environmental-focused legal requirements. Today, companies simply must have defined sustainability initiatives if they wish to remain relevant within the industry. From reducing CO2 emissions to cutting waste material, sustainability efforts are now at the very heart of the construction market.

New technologies and high-security solutions such as low-e glass and fire-resistant windows have begun to reshape the glass industry as we know it. After years of investment in such technologies, Tecnoglass has emerged as a leading manufacturer of high-security glass products, and is forging ahead with innovative sustainable solutions for both commercial and residential buildings. Each year we evaluate our progress in these crucial areas, setting new goals while considering the economic, social and environmental impact of our work. In a demonstration of our commitment to this cause, we have recently joined the UN’s Global Compact programme, which ranks as the world’s largest corporate sustainability initiative. In terms of renewable energy, meanwhile, we have introduced an on-grid photovoltaic system at our production plant. As we inevitably consume a large amount of energy in our operations at Tecnoglass, this solar panel system will revolutionise our energy usage, and is set to reduce our CO2 emissions by 34.3 tonnes over 25 years.

Where is Tecnoglass currently active, and what is the situation in those markets?
Tecnoglass is currently active in the Americas and the Caribbean – with the intention of penetrating the European market. The US and Colombia account for the majority of our present revenues, representing 76 percent and 20 percent of total sales respectively. Tecnoglass’ US activity is largely based in Florida, where we have a dominant presence and about half our backlog.

The US construction market has shown a remarkable recovery since the 2008 economic crisis. As such, the sector now boasts a healthy growth and is expected to expand by about five percent per annum over the next five years. In Colombia, meanwhile, an improved macroeconomic environment has allowed us to capitalise on construction demand in our home market. Following a four consecutive years downcycle of slowdowns in growth, the Colombian economy has now entered a period of recovery, creating a promising environment for the construction industry given ample pent-up demand.

Which new markets will the company look to enter, and what opportunities do they offer?
We see a great opportunity for further penetration into the lucrative $25bn US market, seeking to build on the crucial foothold we have made in Florida. Over the past two years, we have embarked on an ambitious expansion plan, launching projects into the Northeast, Texas, and the West Coast, and will continue to pursue further diversification into 2019 and beyond. Given our efficient access to the western US through the Panama Canal, this region represents a promising new market for Tecnoglass as well as expanding into other foreign markets. Given this successful penetration and our expansion into the residential market, we expect to see our US sales continue to grow during the remainder of 2018.

These efforts to diversify into new markets will help us mitigate the effect of construction cyclicality in a specific country or region, given that construction cycles vary across markets.

How do construction cycles influence the glass industry?
Demand for architectural glass tends to be cyclical, largely driven by residential and commercial construction activity. Being able to diversify our activity not only from a geographical point of view, but also from an asset type perspective by penetrating the residential market will greatly help us mitigate downcycles. Over the course of its 30-year history, Tecnoglass has proven to be remarkably resilient to cyclical economic downturns. Thanks to our established presence in diversified markets in different regions of Latin America and the US, the company has managed to successfully reduce its cyclical risk. For instance, the company grew its revenues by almost three times from 2007, prior to the mortgage crisis, to 2013 after emerging from it.

What milestones has Tecnoglass achieved so far in its history?
Tecnoglass represents a Case Study by growing from an artisanal business into the only Colombian company listed in the Nasdaq stock exchange and one of the main players in the architectural glass space in a market as demanding as the US. Being listed on Nasdaq has significantly increased our exposure and reputation within the US and Latin America as whole. This has driven Tecnoglass to invest in new technology to meet the demands of new clients and tendencies to be at the forefront of the industry. In 2016, Tecnoglass shares also started trading on the Colombian stock exchange, Bolsa de Valores de Colombia, and later in the year we acquired the Florida-based distribution company ESWindows, in a move that demonstrated our commitment to the US market. Following this, 2017 was a crucial year for the company with the acquisition of GM&P, a glazing company focused on engineering and installation, which further allowed us to penetrate the US market and become a fully vertically integrated company toward the client. We are looking to new frontiers by opening offices in South America and Europe in order to further expand our presence.

How did the acquisition of GM&P play into your strategy?
Based in Florida but boasting a strong presence in Texas, the West Coast and the south-east, GM&P was Tecnoglass’ largest client prior to the acquisition. Given its established position in the US market, the deal enabled Tecnoglass to expand into previously unpenetrated regions beyond Florida. What’s more, GM&P’s extensive network of customers provides Tecnoglass with a wealth of new opportunities.

After one year of operations, we can happily conclude that this acquisition has far exceeded our initial expectations. The deal has provided enhanced vertical integration and streamlined distribution coordination, allowing Tecnoglass to become a real one-stop shop for customers.

How is Tecnoglass’ business strategy designed to cope with the challenges currently facing the industry?
One of the major challenges facing the glass industry is the rise in aluminium prices prompted by US-imposed tariffs on various metals. However, given that Colombia accounts for just 0.1 percent of US aluminium imports, Tecnoglass and other Colombian manufacturers are hopeful to eventually be exempted from these tariffs. We are keeping an eye on how this situation plays out, but in the meantime, sales are up for the entire sector and all players within the industry are taking advantage thanks to the strength of the overall economy.

For Tecnoglass, another challenge is maintaining sustainable growth in an increasingly competitive market. We hope to sustain our competitive advantage through consistent investment in R&D, innovative new products and increased geographic diversification. We are focused on continuous improvement across all aspects of our business, and we believe that our vertically integrated operations position us for continued success in the years to come.

We are constantly updating our business strategy and streamlining initiatives to achieve our vision – to be a worldwide leader of high-quality architectural products and innovative solutions for a sustainable future. Supported by a team of highly trained and motivated employees, Tecnoglass is well on its way to achieving this ambition.

Why we missed the storm

Posted on by Max Tomlin

It has been 10 years since, on a visit to the London School of Economics (LSE), Queen Elizabeth II asked her hosts: “Why did no one see it coming?” She was referring to the financial storm of 2007/8.

As someone who works in applied mathematics, I know how hard it is to make accurate predictions – I even wrote a book, The Future of Everything, which discussed the topic in the context of weather, health and economic forecasting. But when predictions go badly wrong, the experience often offers information that can be used to update and improve forecasting models. To analyse how that process is (still) unfolding in economics, I present excuses given by economists over the last decade, translated for clarity into their meteorological equivalent.

And now, the weather
Former Federal Reserve Chairman Alan Greenspan said in a 2008 testimony: “The data inputted into the risk management models generally covered only the past two decades, a period of euphoria.” Here we have a weather forecaster saying they did not see the storm coming because it had been sunny for so long.

Glenn Stevens, Governor of the Reserve Bank of Australia, in 2008: “I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts.” Weather forecaster: “None of my mates saw it coming either.”

Nobel laureate Robert Lucas in 2009: “Simulations were not presented as assurance that no crisis would occur, but as a forecast of what could be expected conditional on a crisis not occurring.” Here, the weather forecast was explicitly based on no storms happening.

Economist Ben Bernanke in a 2009 commencement address: “Like weather forecasters, economic forecasters must deal with a system that is extraordinarily complex, that is subject to random shocks, and about which our data and understanding will always be imperfect… Mathematicians have discussed the so-called butterfly effect.” The storm was caused by a random shock – or a butterfly.

Future Nobel laureate Tom Sargent in a 2010 interview: “It is just wrong to say that this financial crisis caught modern macroeconomists by surprise.” (Presumably, the non-modern ones were dead.) This is equivalent to weather forecasters saying they were unsurprised by the storm they failed to warn of.

A US Federal Reserve report from 2010: Mainstream macroeconomic models “are very poor in forecasting, but so are all other approaches”. Astrologers are no good either.

Economist John Cochrane in 2011: “It is fun to say that we did not see the crisis coming, but the central empirical prediction of the efficient markets hypothesis is precisely that nobody can tell where markets are going.” Nobel-prize-winning weather forecaster: “It is fun to say we didn’t predict the storm, but at least our prediction that we couldn’t predict it was spot on.”

The Bank of England’s Sujit Kapadia to Queen Elizabeth on her return visit to the LSE in 2012: “People thought markets were efficient, people thought regulation wasn’t necessary… People didn’t realise just how interconnected the system had become.” Weather forecaster: “People screwed up.”

Nobel laureate Paul Krugman at an event titled ‘the Genius of Economics’ in 2015: the crisis “came as a shock to me as to almost everyone”. The few people who did predict it “also saw five crises that didn’t happen coming, so it doesn’t quite count… There’s always going to be something out there that you miss”. Weather genius accuses those who did see it coming of always predicting a storm.

Lord Nick Macpherson, former head of the UK Treasury, in 2016: “I see myself as one of a number of people… who failed to see the crisis coming, who failed to spot the build-up of risk. This was a monumental collective intellectual error.” Weather lord: “We all screwed up.”

Christopher Auld from the University of Victoria in 2017: criticism that relegates the field to “failed ‘weather’ forecasting is not just misguided, it is anti-intellectual and dangerous”. Weather intellectual calling the idea they may have screwed up a monumental intellectual error.

Six eminent UK economists responding to “dangerous” and “ill-informed expert bashing” of their profession in 2017: “Like most economists, we do not try to forecast the date of the next financial crisis, or any other such event. We are not astrologers, nor priests to the market gods.” Six weather priests: “We never claimed to be able to predict the exact hour that your house would blow down, or any other such event afflicted on us at the whim of the weather gods.”

Andrew Haldane, Chief Economist at the Bank of England, in 2017: “Michael Fish getting up: ‘Someone’s called me, there’s no hurricane coming but it will be windy in Spain.’ It is very similar to the sort of reports central banks issued pre-crisis, that there is no hurricane coming but it might be very windy in sub-prime.” (This is a reference to a missed weather forecast by the UK’s Met Office in 1987.) Michael Fish responding on Twitter: forecast was “better than the Bank of England’s”.

Paul Krugman again, responding directly to the Queen’s question in 2018: “My bottom line is that the failure of nearly all macroeconomists, even of the saltwater [Krugman’s] camp, to predict the 2008 crisis was similar in type to the Met Office failure in 1987 – a failure of observation rather than a fundamental failure of concept. Neither the financial crisis nor the Great Recession that followed required a rethinking of basic ideas.” No translation required.

Time for a new paradigm
Of course, it is not completely fair to compare economics with weather forecasting. Recessions are not storms that come out of nowhere, but are things that we actively participate in and are affected by factors like faulty risk models. Economists are also entangled financially with the system they are studying.

Viewed this way, economists’ responsibilities are more like those of engineers or doctors – instead of predicting exactly when the system will crash, they should warn of risks, incorporate design features to help avoid failure, know how to address problems when they occur, and be alert for conflicts of interest, ethical violations and other forms of professional negligence. Failings in these areas, rather than any particular forecast, are the real reason so many are calling for a genuinely new paradigm in economics – and also why the Queen’s question has had so many different answers over the years.

Calculating the human cost of the all-consuming digital age

Posted on by Max Tomlin

Of late, Apple, Google and Facebook have been under fire from numerous sources – and for good reason. While the benefits of such firms are vast and immeasurable, society is also suffering at the hands of their tools, which we have grown to rely on. In short, we’re addicted to our smartphones and to the various forms of social media that they offer. This addiction is causing a long list of problems: distracting us from school and work, harming our personal relationships, and even triggering anxiety disorders.

How can companies whose very purpose depends upon keeping users glued to their screens for as long as possible now encourage the very opposite?

In response, the bigwigs of the tech industry have introduced new tools and apps in the name of promoting digital wellbeing. Back in January, Mark Zuckerberg started off the New Year with a pledge to ensure that the time we spend on Facebook is “time well spent”. He said that, according to research, using social media to connect with those we care about can be good for our wellbeing – for that reason, product teams in the company will focus more on helping users find “more meaningful social interactions”, as opposed to more relevant content.

In May, Google introduced a set of time management tools for Android users to track their screen time and app usage. This included the introduction of Shush (which enables users to switch on ‘do not disturb’ by simply flipping over their phone) and Wind Down (which fades the screen to greyscale for bedtime) modes. Apple was quick to follow suit, announcing in June a series of new controls to monitor usage, while also setting time limits and better controls for notifications and for children. Also in June, Facebook-owned Instagram rolled out a new browsing alert that says: “You’re all caught up – you’ve seen all new posts from the past 48 hours.” This was designed to prevent mindless – and seemingly endless – scrolling.

Recognising a problem
Although the likes of Facebook, Google and Apple are now serving up these thoughtful initiatives, it is these very companies that delivered our digital ‘ill being’ in the first place. They have done so by entering the human psyche and exploiting it, keeping us checking our phones more frequently and for longer bouts at a time. “Psychology and behavioural science are increasingly of interest to digital media platforms,” said Luke Stark, a researcher at Microsoft and fellow at the Berkman Klein Centre for Internet and Society at Harvard University. “Those academic fields are getting incorporated into the design of these systems.”

73

Number of times a day young adults check their phones

260

Average number of minutes a young adult spends on their phone each day

Nowadays, every company in the business employs behavioural psychologists or uses certain techniques to keep consumers using their apps and devices for as long as possible – glued eyeballs are how they make their money, after all. “And the funny thing is, it’s not rocket science. It’s actually pretty straightforward behaviourism, and every company does it – they all have their own tricks,” said Dr Larry Rosen, a research psychologist and author of several books on the psychology of technology.

Instagram, for example, doesn’t send notifications individually – instead, it batches them together, delivering a few at a time, which is much more reinforcing and dopamine-inducing. Snapchat, which is used primarily by teenagers, features ‘streaks’, which keep track of how many days in a row a user has sent and received a snap from each person. “And that is a perfect behavioural way to keep you sucked in,” said Rosen. Stories of teenagers giving their friends their login details so they can keep up their streaks while on vacation attest to this.

But it’s not just social media apps – it’s the phones themselves that keep us hooked. “If it buzzes as soon as you pick it up and it’s in your hand, you get this visceral feeling – that’s again a behavioural science trick,” Rosen told World Finance. Experts argue that these tricks are not just causing obsessive behaviour – they are also causing psychological disorders. Rosen refers to these as ‘iDisorders’: “It’s when the use of technology promotes signs [or] symptoms of psychiatric disorders. So for example, reading on Facebook that all your friends are having a wonderful time and having events that you’re not invited to and showing signs and symptoms of depression, that would be an iDisorder.”

Finding out why
In terms of the ‘time well spent’ initiatives, the question is whether they will actually work to reduce obsessive behaviour and the potential onslaught of iDisorders. The short answer, it would seem, is no. Rosen has been carrying out his own such research for some time now and said: “The results are pretty staggering… The latest results [show] that young adults are checking their [phones] 73 times a day, and they’re there for around 260 minutes, which is almost four and a half hours. It’s a large commitment.”

After a study finishes, Rosen and his team ask participants if they checked the data before submitting their results. The answer is invariably yes. They then ask if it was more or less time than they thought – it’s almost always more. “And then the important question is, did you do anything to make any changes? And the answer [for] at least half of them is no,” said Rosen.

He goes on to say that digital wellbeing apps are missing two key components: “They’re missing the why and the how… Telling you how much time you’re spending, telling you the ‘what’, is important – it’s a first step. But we know from our work that it’s very likely that you won’t do anything, and the reason you won’t do anything is because of the ‘why’. And that’s what we’ve been studying – why are people obsessed with their phones?”

Rosen explained some of the reasons: “One is simply accessibility – you carry [your phone] with you all the time.” Another, he said, is poor metacognition, which sees us make bad decisions about using our phones to our detriment: for example, keeping them within hand’s reach at night, despite knowing it will impact sleep. There is also the boredom factor: people simply do not allow themselves to feel bored anymore. A moment becomes free and out comes our phone, ready to benignly entertain us for seconds at a time. Then is what Rosen believes to be the most important reason: anxiety.

“We study a particular kind of anxiety – we call it technological dependency, or technological anxiety,” he told World Finance. “Some people call it nomophobia, some people call it ‘FOMO’ – fear of missing out. But it’s an anxiety that comes from that social responsibility… to keep checking in on your social media. You may get a notification that forces you to go there, or half the time you don’t get a notification, your brain is just telling you, ‘it’s been a while, I better check it’, and that’s a function of anxiety. And we know that because if you take away your phone, you get highly anxious.”

Studies have been carried out to prove this. In a recent instalment of CBS’ 60 Minutes, which has been watched by millions, Rosen and his colleagues put the test to presenter Anderson Cooper. While hooked up to a device, Cooper’s phone was placed out of sight, but still pinging with notifications. “Every time we texted him, the galvanic skin response, which is a measure of anxiety, spiked,” said Rosen. This type of reaction – though extreme – has in fact become the norm for most of us.

Business model discrepancy
Now that people are starting to comprehend just how obsessed with our phones we have become, the discourse around digital wellbeing is beginning to proliferate. But how can companies whose very purpose – and whose profit margins – depends upon keeping users glued to their screens for as long as possible begin to encourage the very opposite? Part of the answer comes down to a difference in their business models. “If you think about companies that have hardware, like Apple and Google, they have their own operating systems companies,” said Stark. “[This is different to] companies like Facebook, which [are] actually a little bit more vulnerable to some of these conversations to do with digital wellbeing because they’re just one app.”

This means that Apple and Google can promote digital wellbeing, but they can do so by pointing towards social media apps. “I think it’s actually not surprising that you see Google especially being much more willing to engage with digital wellbeing as this kind of loss leader, because they know people are still going to use their search and they’re still going to buy their phones. Whereas Facebook’s phrasing of digital wellbeing, which is this idea of positive connection, supports Facebook’s business model of more connectivity,” Stark told World Finance.

And this is the interesting point: the more a company seems to be doing with regards to digital wellbeing, the less reliant their business model is on the so-called attention economy. Stark believes it comes down to their plans for long-term sustainability: “In order to have their consumers continue to use these devices, and crucially to provide data over the long term, these companies need you to keep using their products.” If users become so disenchanted with Facebook that they simply stop using it, the company’s entire model would soon collapse. Stark continued: “[Similarly to how], in the retail world, you [offer] something at a lower price than you should to draw people into the store, I think these [wellbeing] technologies are a kind of enticement to keep consumers using their technologies in the long run.”

Ultimately, technology companies are not suddenly worried about our wellbeing. They are not concerned if we’re spending five hours a day on our phones – in fact, that’s a win. They engineered this scenario through their surreptitious use of behavioural psychology. However, they now recognise that people are becoming more aware of their obsessive behaviour, the harm it is causing them in the present, and the potential consequences to their (and their children’s) physical and mental health in the future. As this awareness grows, so will the backlash. In this respect, technology companies are simply trading their short-term growth for long-term profitability: they are just trying to put out the fire before it spreads.

BDO Unibank is embracing technology for the sake of its customers in the Philippines

Posted on by Max Tomlin

The world’s financial markets are more connected than ever. Information concerning market and economic conditions is readily available thanks to improvements in communications technology, while modern computer systems have made it possible for financial institutions to process an incredibly large number of transactions. This has accelerated the pace of business both in the Philippines and around the globe.

BDO is introducing products that encourage financial inclusion, support investor education and address all the challenges the industry is facing

Over the past 10 years, the trust industry in the Philippines has undergone a similar transformation. Having previously offered traditional products to customers via branches, trust entities are now able to supply a more diverse suite of products and services across a number of channels. These products are designed to provide investment solutions to the varied needs of clients, and are all delivered via the internet and smartphones.

These developments have made financial literacy more vital than ever. As well as developing new products and finding ways for technology to assist customers, BDO Unibank is playing a role in advancing the entire Philippine financial industry. Our strong support of key initiatives from the Philippine central bank, Bangko Sentral ng Pilipinas (BSP), is making a real difference in the lives of many people. From its prominent position, BDO is introducing products that encourage financial inclusion, support investor education and address all the challenges the industry is currently facing.

Amid this changing landscape, BDO intends to remain at the forefront of the Philippine trust industry. This means not only maintaining the high standards our clients have come to expect from us, but also fostering systematic change. We are in a prime position to do so: as of December 31, 2017, BDO’s consolidated trust assets under management stood at PHP 1.05trn ($19.7bn), representing a 33 percent market share of the local trust industry. Out of this amount, PHP 752bn ($14.1bn) is managed by the Trust and Investments Group of BDO Unibank, while the remaining PHP 294bn ($5.5bn) is managed by the Wealth Advisory and Trust Group of BDO Private Bank, a subsidiary of BDO Unibank. This is testament to the trust our clients have in us. Nonetheless, BDO will not become complacent and wait for others to engender change.

Driving nationwide inclusivity
As the largest trust entity in the Philippines, BDO remains a stalwart supporter of the BSP and is committed to meeting its stringent standards. We were the first financial institution in the country to be accredited as a personal equity and retirement account (PERA) administrator – a BSP initiative designed to encourage saving for retirement, while also promoting the development of capital markets.

$19.7bn

BDO Unibank’s consolidated trust assets under management

$14.1bn

Amount managed by the Trust and Investments Group

$5.5bn

Amount managed by the Wealth Advisory and Trust Group

Our focus on financial inclusion was our main motivation for becoming a PERA administrator. We believe that being a leader in the implementation and promotion of the initiative will ensure BDO becomes a driver for the nation, helping the Filipino people achieve their financial goals, both now and after retirement. For our PERA clients, we have launched several different funds, which all enjoy tax benefits that are unique to the scheme.

Another financial inclusion initiative we have launched is the Easy Investment Plan (EIP). The EIP is an investment build-up plan that enables investors to attain their financial goals and wellness by regularly saving and investing, even for amounts as low as PHP 1,000 ($18) per contribution. This has provided our clients with a wider range of investment funds to choose from, both in pisos and dollars. This programme also takes advantage of a cost averaging strategy, keeping fees low. We believe the EIP will help Filipinos shift from being savers to becoming proactive investors.

The EIP helps us debunk investing myths, such as the misconception that investing is difficult and only for the rich. With EIP, investing is made simple, easy and, best of all, affordable.

BDO is also an ardent supporter of investor education. We believe that educating our clients about the benefits of investing will improve the average Filipino’s financial wellness. Our investment officers, fund managers and marketing officers provide briefings and investment updates to our clients across all provinces in the Philippines. These ‘coffee talks’ allow our clients to keep up to date with developments in both the local and global economy, providing them with material information for their investment decisions. BDO also conducts financial wellness seminars, presenting Filipinos with the basics of investing, such as how to start investing, how to manage investments and how to plan for retirement. In 2017, BDO conducted seven public seminars, which were attended by more than 500 prospective investors. BDO also ran 65 private financial wellness seminars in the same time frame, attracting almost 2,000 participants.

To support our advocacy of investor education, BDO provides thorough product training to all personnel across our 1,000-plus network of branches. This ensures staff are able to communicate the benefits of investing and accurately describe the features of our investment products to both prospective and existing clients. We believe that financial education should start at home and, in this case, at our branches.

Confronting today’s challenges
One of the problems we have encountered is the heightened risk and compliance processes brought about by the 2008 financial crisis. The crisis was an eye-opener for financial institutions around the world. Though the Philippines was relatively spared from the more serious effects, it did expose vulnerabilities in the financial system. Since then, the BSP has been advocating risk mitigation and consumer protection, both of which BDO fully supports. We have been enhancing our risk controls so that we are prepared to weather the next financial crisis, whenever it may come.

Another challenge that the industry is facing is the rise of financial technology; having an expansive branch network may not be enough to survive in the coming years. Though the BDO Unit Investment Trust Funds (UITF) are currently available through the BDO website, we do recognise the need to improve our electronic communication channels. With the rise of the Millennial customer segment, this is becoming even more important, as obsolescence and irrelevance are becoming a real threat. As such, this particular group has forced us to rethink our existing business model. By gathering insights from the younger generation, we found there is a need to adapt our electronic strategy and make trust products more accessible through digital channels. Through this initiative, we are making our products readily and easily available nationwide. This may involve partnering with other financial product distributors in the future.

A global outlook
Cognisant of the ever-evolving needs of our clients, BDO’s unrelenting focus on innovative products and services is what makes us stand out from the competition. We pride ourselves on being adaptable in an ever-changing capital market sector, as well as being able to survive intense market competition. We ensure that our products and services are up to date and provide relevant solutions to clients’ needs.

BDO also takes pride in having launched the first socially responsible investment fund in the local market. As such, BDO incorporates environmental, social and governance (ESG) factors into a selection of equity investments offered by its ESG Equity Fund. This fund primarily addresses the needs of institutional clients, such as schools, non-profit organisations and religious entities looking for a socially responsible fund.

The real estate investment trust (REIT) and unit investment trust funds represent more firsts for us. The BDO-developed Markets Property Index Feeder Fund exposes participants to the REIT – as well as to real estate companies listed in 23 developed markets – enabling them to take advantage of the regular dividend income from these securities. We have also launched the first local China fund, providing participants with the opportunity to take advantage of the remarkable growth seen in large Chinese companies.

In 2017, we expanded our existing array of global funds with the launch of the BDO Europe Equity Feeder Fund and the BDO Japan Equity Index Feeder Fund. Our clients can now access the US, Europe, China, Japan and other global equity markets through BDO branches and BDO Invest Online. Though the Philippine equity market has been providing relatively good returns over the past five years, it has still lagged behind major markets in dollar terms. Investing in the BDO Global Feeder Fund allows our clients to diversify their portfolio and take advantage of investment opportunities from the convenience of their own home.

BDO also continues to work with the BSP, as well as our fellow trust practitioners, in developing new products and services. We look at global practices to see if new types of investment products or services will be beneficial to the local market. We continue to lead the development of these new initiatives, while moulding new regulations to support these products. In the coming years, we hope to see new UITF classifications, such as target-date funds, dynamic-allocation funds and multi-currency classes.

Given the opportunities and risks that are ever present in a highly connected global economy, BDO remains committed to delivering trusted products and services that surpass client expectations in terms of both value and customer service, while also remaining prudent and trustworthy stewards of their wealth.

Mediobanca is successfully promoting the benefits of the club deal structure

Posted on by Max Tomlin

Over the past couple of years, volatility has shaken financial markets around the world. Amid this uncertainty, Italian investment bank Mediobanca noticed that its private banking clients sought to diversify their portfolios by identifying illiquid forms of investment. Mediobanca’s private banking branch deals with high-net-worth individuals (HNWIs), most of whom are entrepreneurs. This segment finds it increasingly attractive to invest in a business through a private club structure, rather than simply buying financial products.

With this in mind, Mediobanca Private Banking has looked to embrace the ‘club deal’ approach to investment, not only from a financial standpoint, but also by taking into account entrepreneurial investors who want to share their expertise. Mediobanca Private Banking launched the Equity Partners Investment Club in December 2017, and the project is now poised to launch investments in dynamic companies that seek capital in order to spur a quantum leap in growth – an area shareholders have historically found difficult to finance.

Identifying potential
Mediobanca Private Banking was founded to serve HNWIs. Offering clients a private and investment banking model, it’s based on synergies with the corporate and investment banking division of Mediobanca, which is dedicated to the mid-corporate segment. The unit, therefore, benefits from the investment bank’s expertise in advisory and capital market services. This helps clients manage all of their financial needs – both private and business – through synergies with the group’s divisions, from private banking and corporate finance to real estate services.

Following the launch of the Equity Partners Investment Club, Mediobanca quickly received expressions of interest totalling over €500m ($567m). The principal objective of the project is to identify outstanding Italian companies and assess the viability of taking either minority or controlling stakes in them, depending on their individual circumstances.

Mediobanca is participating as a sponsor in its club deal project, working alongside several of the bank’s entrepreneurial clients. The objective is to invest in medium-sized companies with high growth potential, chiefly operating in ‘made in Italy’ sectors with a value of between €200m ($227m) and €300m ($341m).

Interest in the project was confirmed with the launch of the first investment in June. The deal was made between four investors and Seri Jakala, a high-value-added marketing service company looking for fresh equity to support its new growth drive, which involves innovation and international expansion.

Taking shape
The club deal project involves the participation of 50 leading Italian families who, together with Mediobanca, will invest in target companies identified by the project’s management team through dedicated, special-purpose vehicles. Although the club deal project will mainly invest in outstanding Italian firms with a strong inclination towards exports, deals in other European countries will not be ruled out either.

For each deal, a commitment of between €80m ($91m) and €100m ($114m) is anticipated, of which Mediobanca will contribute 20 percent. The other 80 percent will be put up by the families of the bank’s entrepreneurial clients, each of whom will contribute a minimum investment of €5m ($5.7m) if they choose to invest in the venture. Investors will have the freedom to choose whether or not they would like to be involved in an investment on a deal-by-deal basis. This makes the club deal model different from other forms of illiquid investments, such as private equity funds.

This type of structure is particularly fair, as it does not involve management fees. A success fee will only be charged once the hurdle rate of seven percent has been exceeded.

Italian excellence
Through its Equity Partners Investment Club, Mediobanca continues to identify new investment opportunities for its clients. In particular, it is monitoring sectors in which Italy has demonstrated genuine excellence. For this reason, the team is talking to firms in the food, fashion, retail and machinery sectors.

The Equity Partners Investment Club is also looking for family-run firms, in which entrepreneurs will continue to play a key role after the initial investment is made. This is an important consideration, given the fact the fund will be taking minority, and not controlling, interests in the organisations.

At this point in time, Mediobanca is talking to a number of entrepreneurs that see this investment vehicle as an appealing instrument for opening up their companies’ equity, while also receiving a decisive contribution in terms of quality. The relationships fostered with other shareholders through the club structure will undoubtedly add further value and expertise.

Top 5 ways AI is changing traditional finance

Posted on by Max Tomlin

For decades the global financial services industry was stuck in its ways, unwilling to adapt or change its processes and becoming increasingly inefficient as a result. However, the advent of computing and Artificial Intelligence (AI) in the early 80s set off a chain reaction in the industry that led to the significant shake up we are still seeing today.

With large data sets and vast, complex global markets, the financial services industry is ripe for innovation

With large data sets and vast, complex global markets, the financial services industry is ripe for innovation, especially the adoption of AI. Furthermore, an increasing demand from consumers for improved experiences, efficiency and transparency has resulted in an increased need to adopt emerging technology.

1 – Increase efficiency
Decision-making in traditional trading was historically based purely on human intuition and years of experience of the markets. However, it was clear that the process could be made much more efficient. As such, automation was harnessed in the industry in the form of trading-bots; algorithmic programmes that automate trade executions based on an underlying set of rules.

Based on the earliest rule-based systems, where both market and fundamental data, such as price and volume information and public information on the traded assets, is analysed, these bots are still widely in general use. They have transformed the markets, bringing increased efficiency by enabling many more trades to be made in a shorter amount of time than previously possible.

2 – Trade commodities
Efforts to further refine these original trading-bots and increase the efficiencies already seen have led to the industry investing heavily in true AI and machine learning programmes. Through harnessing industry experts’ knowledge, as well as creating trading systems that enable AI to play a larger role in the process, the industry is seeing one of the biggest shake-ups since the introduction of computers.

One of the best examples of this is seen in the trading of commodities. Whether energy, food or metals, trading commodities is an important way of diversifying a portfolio beyond traditional securities to improve return on investment. Able to analyse great swaths of data, both environmental and historical, commodities trading with AI algorithms involves a diverse set of trading strategies that are developed, implemented and fine-tuned to optimise returns. Varying in scope and specialisation, together they create a holistic and reliable approach, previously unattainable when using only human traders.

3 – Democratise access
For decades, AI and machine learning algorithms, along with other leading technologies, were exclusively kept in the realm of the top global investment bankers and hedge funds. However, we are starting to see a democratisation of AI technology, enabling everyday consumers to harness this powerful technology for themselves. The increase of open-source projects have made these software programmes available to the masses.

Take commodities trading as above, it used to be that the average investor rarely chose this as a form of investment as it requires large amounts of expertise, time and money. However, the democratisation of AI and machine learning algorithms are opening the doors to trading in commodities to those who were previously unable to do so.

4 – Open up cryptocurrency trading
AI-based algorithms have also enabled successful trading in nascent and inefficient markets like cryptocurrency. Significantly less predictable than traditional markets, the cryptocurrency market does not have a value that is steadfastly defined and as such it is prone to volatile swings, both up and down.

In this wildly volatile market, data analysis and AI holds the key to unlocking the fast-changing dynamics. While humans are vulnerable to emotions running high and clouding their judgement, algorithms do not have this problem, and can work dispassionately for almost continuous periods of time. Further, AI algorithms are able to identify trading signals that humans cannot recognise, especially in markets that are depressed by blind pessimism as is often the case in cryptocurrency.

5 – Reduce trading risk
AI-driven algorithms are also able to avoid high risk margins and inefficiencies that invariably come about when humans influence trading, especially in overheated markets. Further, they can detect, analyse and act on any anomalies in the market, when they are in infancy, to counteract market manipulation; reducing the chance of being caught off guard or making the wrong investment call.

Harnessing AI also removes the risk of human error; strategies that would take around 300 financial analysts to create can be done by one AI in 48 hours. By replacing gut instinct with facts and artificial, data-based intelligence, the entire trading process is streamlined when in nascent and volatile trading markets.

Undoubtably, AI will continue to bring significant improvements to the financial services industry over the coming years. As AI and machine learning algorithms become even more sophisticated, they will permeate into more areas of the industry, bringing democratisation and opportunity of investment to the masses.

The Vietnamese stock exchange continues its remarkable ascent

Posted on by Max Tomlin

With high-value areas such as banking, securities and real estate driving growth, Vietnam’s stock market is already able to satisfy many of the Morgan Stanley Capital International (MSCI) upgrade criteria – and it is making strong headway in meeting its additional requirements, too. BIDV Securities Company (BSC) believes that if this recent upward momentum can be sustained, the Vietnamese stock market could receive a market upgrade by as early as 2020.

Boasting increased macroeconomic stability and a pro-business financial environment, Vietnam is now one of the most attractive markets for foreign investors

Over the past quarter century, Vietnam has experienced a remarkable economic transformation. By shifting away from the agrarian economy of its past and moving towards an industry-and-services-driven model, the nation has rapidly emerged as one of South-East Asia’s fastest-growing economies. Indeed, having recorded an average annual per capita GDP growth rate of 5.3 percent since 1986, Vietnam has been developing faster than any other Asian economy – except for its neighbour to the north, China.

This growth trajectory can be traced back to the launch of the 1986 Doi Moi economic renewal campaign, which saved Vietnam from the brink of economic crisis by opening the nation up to lucrative foreign investment. These wide-reaching reforms had an almost instant impact, transforming a stagnant agricultural economy into the vibrant, market-driven system that Vietnam embodies today. Since this pivotal moment, Vietnam has also benefitted from a programme of intense internal restructuring, which has seen successive governments push through sweeping regulatory changes to increase inflows of foreign direct investment (FDI).

The introduction of such pro-business legislation has created an attractive business environment for international companies, and Vietnam now ranks as one of Asia’s most popular destinations for foreign investors. In a demonstration of economic ambition, the Ho Chi Minh Stock Exchange was launched in 2002, signalling the birth of Vietnam’s stock market. Showing consistently strong performance in the years since its establishment, the Vietnamese stock exchange now ranks among Asia’s top bourses. And with economic growth predicted to reach an impressive 6.8 percent in 2018, Vietnam’s progress shows no signs of slowing down.

An enticing opportunity
Boasting increased macroeconomic stability and a proudly pro-business financial environment, Vietnam is now one of the world’s most attractive markets for foreign investors. Over the course of the past 20 years, Vietnam has received over $70bn in FDI, with FDI enterprises now responsible for 30 percent of the nation’s total industrial production. This FDI boom appears set to continue, with Vietnam attracting investments totalling $5.8bn in the first quarter of this year alone.

$70bn

FDI received by Vietnam over the past 20 years

$5.8bn

FDI received by Vietnam in the first quarter of 2018

30%

Proportion of Vietnam’s industrial production made up of FDI enterprises

Along with Vietnam’s stable business environment and high-quality investment opportunities, the nation’s vast demographic dividends have also proved appealing to foreign investors. With a population of almost 100 million people – 60 percent of whom are under the age of 35 – Vietnam is able to supply a young, highly skilled and abundant workforce to international enterprises at a competitive cost. What’s more, Vietnam enjoys one of the healthiest independent-to-dependent ratios in the region, with a large pool of skilled and educated workers.

As Japan, South Korea, Singapore and even China struggle with the challenges of an ageing population, Vietnam’s healthy demographic structure is particularly attractive to Asian investors from the surrounding region. Indeed, South Korea was the leading investor in Vietnam in the first quarter of this year, with FDI totalling $1.84bn, while Hong Kong and Singapore followed in second and third place, respectively.

In order to further boost inflows of FDI to Vietnam, the government has worked diligently to improve its institutional framework and transparency, as well as to establish more favourable regulations for foreign investors. This commitment to creating a robust business environment has seen a number of significant changes in recent years, from a reduction in corporation tax to tax breaks for specific sectors. These efforts have yielded extremely positive results, with Vietnam jumping 14 places to rank 68th in the World Bank’s Doing Business 2018 report.

The report revealed that Vietnam, along with its South-East Asian neighbour Indonesia, has implemented the most financial reforms in recent history, with an impressive total of 39. Over the course of the past year, Vietnam has notably scrapped the previously mandatory 12-month carry-forward period for VAT tax credits, and has also created an online platform to facilitate filing social security contributions. Reforms such as these demonstrate the government’s commitment to continuously improving the business climate in Vietnam, and help to explain why foreign investors continue to flood to the Vietnamese market.

Attracting inflows
Foreign investors have played a significant role in our nation’s economic growth since the transformative Doi Moi period. Without these crucial investment inflows, Vietnam simply would not be the roaring economic powerhouse that it is today. From boosting job creation to driving technological advances, FDI has been a catalyst for socioeconomic development in Vietnam.

As Vietnam seeks to maintain its impressive growth rate, it is vital that the nation continues to attract FDI, particularly in high-value-added areas. At BSC, we are committed to increasing FDI inflows to Vietnam through our investment, brokerage and financial advisory services.

Thanks to our local market expertise and valuable access to data, BSC has established a large international customer base, comprising clients from various fields and professions. Our investment advisory team applies its in-depth market knowledge to its brokerage business, offering clients crucial guidance as they explore promising investment opportunities. This brokerage business is supported by BSC’s detail-orientated research and analysis department, which uses a data-driven approach to identify appropriate investment strategies for both domestic and international investors.

By analysing current market trends and forecasting future industry patterns, the research team assists clients in deepening their understanding of the Vietnamese business landscape. Meanwhile, our investment banking department provides a range of crucial products and services to clients, from assisting with restructuring or privatisation initiatives to advising on mergers and acquisitions (M&A).

Vietnam has experienced a surge in M&A activity in recent years, with deal values reaching a record $10.2bn in 2017. This trend shows no signs of stopping in 2018, with M&A activity totalling $3.35bn in the first half of the year, up by 39 percent from the same period in 2017. Despite the disappointing collapse of the Trans-Pacific Partnership earlier this year – and subsequent fears over a potential Sino-US trade dispute – the Vietnamese M&A market has continued to flourish, with the property sector driving deals in the opening months of 2018. With the Vietnamese Government planning to sell shares in hundreds of state-owned firms in the coming years, the nation’s M&A market is set to attract even more international attention.

Stock market strength
As one of the nation’s largest securities firms in terms of capital and size, BSC has played an important role in shaping the Ho Chi Minh Stock Exchange, which has performed strongly since launching in 2002. With investors continuing to exhibit a keen interest in the Vietnamese stock market, the Ho Chi Minh Stock Exchange may well be upgraded to emerging market status by 2021.

While obstacles like information disclosure and market transparency may pose a challenge to any hopes of a status upgrade, we are optimistic that Vietnam will be admitted onto the MSCI watchlist for market reclassification, scheduled for release in 2019.

In June, MSCI announced that it would be upgrading both the Saudi Arabian and Argentinian stock markets to emerging market status. This gives much cause for optimism, as BSC believes the Vietnamese stock market compares well – and in some areas, favourably – to the Saudi Arabian and Argentinian markets. In contrast to the primarily oil-driven Saudi economy, the Vietnamese market is highly diversified with a range of well-performing domestic industries. A fall in the peso’s value, meanwhile, has taken a severe toll on the Argentinian market, with the country currently reporting one of the highest inflation rates in the world.

In comparison, the Vietnamese market is stable, with consistently high GDP growth rates. Interest rates and foreign exchange markets are also relatively stable, with the securities market boasting particularly strong and steady growth. What’s more, the Vietnamese Government is committed to cutting red tape and creating an attractive business climate, accelerating regulatory changes that have helped to create more opportunities for both domestic and foreign investors.

As one of Asia’s most promising bourses, Vietnam’s stock exchange is considered to be a great prospective market. Indeed, the Vietnamese stock market could achieve its well-deserved market upgrade in just a few years if it maintains its current trajectory. With this exciting possibility now on the horizon, the future for Vietnam’s stock market looks brighter than ever.

China vows to fight rising protectionism

Posted on by Max Tomlin

Chinese Premier Li Keqiang has promised to open up China’s economy in the face of rising global protectionism, as he travels to Singapore for trade talks with APAC leaders.

Writing in the Straits Times newspaper on November 12, Li said: “China has opened its door to the world; we will never close it but open it even wider.” He also called for an “open world economy” in the face of “rising unilateralism”.

While APAC nations have been reaffirming their commitment to co-operation, Trump has been making his dislike of multilateral agreements well known

Li’s remarks also coincided with a call from Singapore’s Prime Minister Lee Hsien Loong for more economic cooperation between governments in the APAC region. Speaking at the Asean Business and Investment Summit on November 12, Lee stated that multilateralism is “fraying under political pressures,” but argued that disintegration could be combatted by fiscal and regulatory openness.

Neither Li nor Lee directly mentioned the US-China trade war, but it is expected to be a key topic of discussion at this week’s meetings with APAC leaders in Singapore. All ten leaders of the Association of Southeast Asian Nations are expected to attend, along with Russian President Vladimir Putin, Indian Prime Minister Narendra Modi and Japanese Prime Minister Shinzo Abe. US President Donald Trump will be noticeably absent, having selected Vice President Mike Pence to attend in his place.

Also on the schedule for debate is the Regional Comprehensive Economic Partnership pact, which is currently under negotiation by 16 countries including China, India, Japan and South Korea. If passed successfully, the pact will represent more than one third of the world’s GDP. The US is not included in the deal.

While APAC nations have been reaffirming their commitment to co-operation, Trump has been making his dislike of multilateral agreements well known to the international press. The US president pulled out of a major Pacific trade deal, the Pacific Rim, just after taking office in 2017, claiming that multilateral agreements cost American jobs. He also aggressively re-negotiated the North American Free Trade Agreement earlier in 2018 in order to achieve a more favourable deal for the US.

This aggressive international stance, combined with his proud self-declaration as a “nationalist,” earned the US president a stony reception in Paris on November 11, when he arrived for a ceremony commemorating 100 years since the end of World War One. In a speech to world leaders, including Trump and German Chancellor Angela Merkel, French President Emmanuel Macron urged against national insularity, instead advocating cross-border cooperation. “By putting our own interests first, with no regard for others, we erase the very thing that a nation holds dear,” he said.

Merkel echoed Macron’s sentiment in her speech at the same event, stating: “The First World War showed us what kind of ruin isolationism can lead us into. And if seclusion wasn’t a solution 100 years ago, how could it be so today?”

Trump is expected to discuss the US’ economic co-operation and participation in global trade agreements at the G20 summit in Buenos Aires at the end of November. This will include a highly anticipated meeting with China’s President Xi Jinping, following months of tit-for-tat tariff application between the world’s two largest economies. However, with Trump’s continuing allegations of intellectual property theft and technological tampering against China, hopes of reconciliation are fading fast.

Poor infrastructure is threatening to derail the US shale boom

Posted on by Max Tomlin

This July, the US crude oil industry celebrated a groundbreaking moment when its output averaged an estimated 11 million barrels per day (BPD) for the first time ever (see Fig 1). This makes the US the world’s second-largest producer, behind only Russia. The surge is largely down to the boom in shale oil and gas production in the Permian Basin across the west of Texas and south-east New Mexico. Drilling in the region began to ramp up a decade ago, and it is only projected to continue growing. But there is one hurdle standing in the way: a lack of critical infrastructure.

It is not just oil pipelines that are unable to keep up with demand – the associated natural gas production has also overwhelmed the system

In recent months, producers have experienced pipeline bottlenecks due to the vast amounts of oil and gas being pumped out of the Permian Basin, where output has reached around 3.4 million BPD. With the current pipeline capacity sitting at approximately 3.56 million BPD, analysts expect the constraints to begin limiting growth in the region next year.

Growing pains
Before the rapid development of America’s shale industry caused a new surge in crude output, US oil production peaked at about 9.6 million BPD in 1970. After that, it decreased steadily, falling as low as five million BPD in 2008. Around this time, however, producers revolutionised the industry by using hydraulic fracturing, or fracking, and horizontal drilling to extract oil and gas trapped in reservoir rocks. Production soared at the fastest pace in the country’s history, upending the global oil and gas industry.

The Permian Basin is at the centre of the US shale boom. It is one of the world’s thickest deposits of rocks from the Permian geologic period, and along with the legendary Ghawar Field in Saudi Arabia, the Permian is one of the world’s most prolific. Since 2012, production there has grown by about two million BPD, which is more than any other field.

It is estimated that another 75 billion barrels of recoverable oil lie within the Permian. Brian Collins, a senior researcher at S&P Global Market Intelligence, told World Finance that this basin will be the “mainstay for US production for the foreseeable future”.

Its success, however, is beginning to highlight cracks in the area’s infrastructure. By the end of 2018, BP Capital Fund Advisors expects production to exceed available pipeline space by 300,000 to 400,000 BPD. By 2019, that gap will rise to 750,000 BPD, causing a “significant” amount of oil to be stranded in the basin.

And it is not just oil pipelines that are unable to keep up with demand – the associated natural gas production has also overwhelmed the system, and the accompanying water that is produced is becoming a problem too. For every barrel of oil produced, between three and five barrels of contaminated water must also be piped away. Additionally, more pipelines will soon be needed to handle natural gas liquids, which are components of natural gas.

“So we’ve got basically four different infrastructure systems that are extremely challenged right now. This basin is not going to stop growing, either. It’s going to keep growing as these companies expand across it,” Collins said.

Shifting away
As news came to light in May that pipeline bottlenecks were constraining crude shipments, the share prices of companies based in the region started to slide. At the beginning of June, Bloomberg reported that eight of the basin’s pure-play drillers had lost $15.6bn in combined market value in just two weeks – or around $1bn a day.

2 million

The growth in BPD production in the Permian Basin since 2012

3.4 million

The BPD production capacity in the Permian Basin

3.56 million

The BPD capacity of pipelines in the Permian Basin

What’s more, oil behemoth BP recently revealed its oil trading unit had swung to a quarterly loss due to the Permian bottlenecks, which have led producers in the region to sell their crude at a hefty discount relative to benchmark West Texas Intermediate prices. While the spread was as little as 40 cents at the beginning of the year, it reached between $15 and $20 a barrel in August. This discount is expected to persist for at least another year.

Not only are producers grappling with discounts on their oil, but in response to the squeeze companies have also been forced to go down the expensive route of storing their crude or driving it hundreds of miles on trucks to pipelines in other parts of the state.

Because of this, ConocoPhillips – one of the top oil producers in the US – revealed in June that it would temporarily redeploy resources out of the Permian Basin. “We have other opportunities to go spend our capital,” CEO Ryan Lance told the Financial Times. “And I am not sure it makes sense to drill into that headwind.” A number of other companies both big and small are beginning to “shift their emphasis to other basins”, Collins said.

But while oil and gas firms with deep pockets can wait around for returns on their investments, the midstream companies that build the desperately needed infrastructure cannot make investments into pipelines without knowing if they will receive a steady volume of oil or gas.

“An issue right now is a lot of the natural gas pipelines that are needed are having a hard time getting off the ground because producers are not necessarily used to having to pay somebody to build them a pipeline to get rid of their gas,” Collins said. Even one of the largest pipeline builders in the US, Kinder Morgan, is conservative about the prospect of building new pipelines.

The big fix
According to BP Capital, “meaningful relief” is set to come to the Permian in the second half of 2019 with the set-up of key long-haul pipelines, such as EPIC, Gray Oak and Cactus II. The International Energy Agency (IEA) said TexStar Midstream Logistics’ EPIC pipeline – one of the biggest and most advanced projects in development – “holds the key to solving pipeline bottlenecks in 2019”.

The pipeline was originally set to carry 440,000 BPD, but it could be upgraded to transport 675,000 BPD due to high demand. Once these pipelines are in place, crude oil produced in the region is expected to stop selling at a discount compared with benchmark prices.

In BP Capital’s view, the sell-off in the region’s exploration and production firms was “overly severe and particularly short sighted”. The firm stressed in an online article that the bottlenecks are a “relatively short-term issue that does not diminish the long-term attractiveness and potential of the Permian Basin”.

While it is true the basin remains attractive for many producers, the IEA expects output to grow at a slower rate in 2019 as pipeline capacity remains tight. The Paris-based agency predicted output would rise by 1.3 million BPD this year, and just 900,000 BPD in 2019. According to the IEA: “Pressure on midstream infrastructure and pipeline capacity out of the Permian and Eagle Ford basins in Texas is unlikely to be resolved before the second half of 2019. Labour shortages, road congestion and water disposal constraints could also contribute to curbs in expansion in the short term.”

There are additional concerns that the pipeline projects could face delays. Analysts at Morgan Stanley expect slowdowns of three to six months for some projects due to the complexity of the proposed lines. This could lead to the production of just 360,000 BPD in the Permian Basin in 2019, Morgan Stanley said. Some midstream companies also face higher-than-expected material costs because of President Donald Trump’s 25 percent tariff on steel imports. For Plains All American Pipeline, which is building the 585,000-BPD Cactus II pipeline, the tariff has increased the cost of its $1.1bn pipeline by about $40m.

However, it is unlikely the basin’s problems will end in 2019. Production is expected to continue ramping up in the region in the decades to come, and the planning process for building pipelines appears to be flawed. Collins said a new type of financing would be needed to allow producers to better cooperate with midstream players: “If oil and gas companies actually formally commit and sign on to be a shipper on a pipeline, that’s how these pipelines will get built.” Yet, Collins admitted, most producers are reluctant to own their own pipeline.

Therefore, the ‘Wild West’ environment is expected to continue. Collins said: “It seems like it’s just going to be this odd situation where we’re going to get these pipelines all built [and,] say two years from now, we have brought the pipeline space up to where it can handle all of the natural gas and the liquid output. But then I think that producers are going to continue to race along, and maybe this is going to be a backwards-and-forwards kind of situation for many years.”

Although the new pipeline projects face some potential hiccups, the current bottlenecks in the Permian Basin are indeed a short-term problem. But the industry should take it as a warning that until a more cooperative process is formed between producers and pipeline builders, this could be the first glimpse of an issue that could plague the future of one of the world’s top shale basins.

Union National Bank continues to play its part in the success of the UAE’s banking sector

Posted on by Max Tomlin

Following two challenging years of crude market volatility, 2018 has marked something of a turning point for the UAE economy. With oil prices now rebounding, the nation’s financial deficit is projected to reverse by 2020, with both the federal government and individual emirates adopting a more expansionary fiscal stance.

Compared with some of its GCC neighbours, the UAE is less dependent on crude oil and boasts an impressively diverse economy

While the pick-up in crude oil prices certainly bodes well for the UAE’s economic outlook, there are important lessons to be learned from the market’s two-year slump. Indeed, the turbulence of the past two years has explicitly exposed the Gulf Cooperation Council (GCC) members’ vulnerability to oil price volatility, and has put more focus on the diversification drive across the Arabian Gulf. Compared with some of its GCC neighbours, however, the UAE is less dependent on crude oil than in previous years, and already boasts an impressively diverse economy.

With a booming tourism industry and flourishing construction, industrial and pharmaceuticals sectors, the nation’s high-performing non-oil markets are set to be the main drivers of growth in 2018 and beyond. What’s more, as the country prepares to host the highly anticipated Expo 2020, infrastructure spending is set to ramp up in the host city of Dubai, creating a wave of new jobs and economic opportunities in this fast-growing global emirate.

23

Number of domestic banks currently operating in the UAE 2013

29

Number of foreign banks currently operating in the UAE

As the UAE presses ahead with its economic diversification plans, one sector in particular continues to drive growth: banking. Boasting high profitability and showing remarkable stability in testing economic circumstances, the nation’s banking industry has emerged as one of the UAE’s most prominent non-oil sectors. Home to one of the region’s largest banking sectors, the UAE is fast becoming a global financial hub, attracting stakeholders, partners and clients from the GCC and beyond. Leading the way for financial innovation and stability is Union National Bank (UNB), one of the UAE’s top financial institutions. With a consistently strong financial performance, impressive credit ratings and a number of prestigious accolades, UNB is going from strength to strength. While we are certainly proud of our achievements so far, we also understand that the key to sustained success is innovation and reinvention, and we are therefore committed to developing new strategies as we look to grow our business for the future.

Ahead of the competition
With the banking sector playing an increasingly important role in the UAE’s economy, it is vital that banks learn how to distinguish themselves from their competitors. The industry is fast becoming a crowded market, with 23 domestic banks and 29 foreign financial institutions operating within the UAE, as well as a number of alternative banking and finance companies that serve various segments of the economy. In this dynamic and competitive business environment, the UAE’s financial institutions are now implementing innovative strategies to ensure success
for years to come.

At UNB, we are committed to supporting the country’s economic, social and environmental development, in addition to creating value for our customers and stakeholders. We are the bank that cares, and it is this unique, nurturing approach that truly sets UNB apart from its competitors. Our customers are at the heart of everything we do, and we are committed to enhancing their banking experience. In order to ensure our services suit our clients, we encourage customers to express their opinions through multiple ‘customer voice’ channels. We use the feedback that we receive from our clients to improve, innovate and expand our range of products and services, as well as to ensure excellent customer service in all aspects of our business. With this customer-focused approach in mind, UNB has recently launched a customer service award, which aims to further enhance the service culture and excellence mindset across our network of UNB branches. Highlighting the importance of customer satisfaction, this new award supports our mission to become the bank of choice for all stakeholders in the UAE.

In addition to enhancing the customer experience, we are also dedicated to creating a more sustainable community. Our commitment to corporate social responsibility (CSR) matches our business tagline – ‘the bank that cares’ – and we understand the importance of effecting positive change in the wider community. Our CSR initiatives focus on four key areas: education, community, climate change and the environment, and the sustainable development of local talent. As we look to create a more sustainable future for the UAE, UNB has partnered with respected organisations such as the Emirates Wildlife Society in association with the World Wildlife Fund, and the Ministry of Environment and Water, signalling our commitment to driving sustainability both internally at UNB and externally in our community. What’s more, UNB donated over $8m to the Sandooq Al Watan community initiative in 2017, as part of our continued effort to support the development of local entrepreneurs in preparation for the post-oil-dependancy era. We are conscious of the influence that we have in wider society, and always strive to create a positive impact in all aspects of our business.

Employee wellbeing is key
As businesses grow and bring more members of staff into their teams, it is vital that they recognise the importance of prioritising employee welfare and wellbeing. In the financial sector, this is no different, and many banks across the globe are taking measures to ensure that their employees feel happy and motivated at work. Indeed, this is particularly crucial in the post-crisis era, as increased scrutiny and pressures may easily have an adverse effect on staff wellbeing and engagement.

The link between employee wellbeing and business effectiveness has long been established, with an improvement in workplace welfare resulting in improved performance and engagement. As such, improving staff morale is as beneficial for the employer as it is for the employee; enhanced wellbeing is known to positively impact productivity, growth, bottom-line performance and even a company’s reputation within the industry. At UNB, employee wellbeing and engagement form the core of our business philosophy. In an effort to boost employee happiness and drive success among our staff members, we have launched the innovative and award-winning Tahfeez HR transformation strategy. This focuses on the building of existing and future capabilities of our people and the retention of talent, paying particular attention to quality of life, work-life balance, physical and mental health, and social, financial and spiritual wellbeing.

The Steps of Giving initiative and the New Me healthy lifestyle campaign have also been well received within the bank, with staff members responding positively to our engagement efforts. Alongside these ongoing campaigns, UNB aims to boost employee motivation through a number of unique and exciting events. In April 2018, for instance, the staff fishing club organised a pilot fishing trip, which proved extremely popular. As a result of the overwhelmingly positive response to this event, similar trips and excursions are now being planned for later in the year and in 2019.

Following the success of these wellbeing initiatives, UNB is keen to maintain its upward momentum and continue to make progress in this crucial area. In November 2018, we will be launching a new wellbeing campaign – ‘the fitness challenge’ – which will be open to all UNB staff. Taking advantage of the cooler temperatures , we will be encouraging all of our employees to participate in a range of outdoor activities, like running and cycling, as well as organising a variety of team sporting events.

An evolving market
Despite our recent successes in areas such as employee wellbeing, shareholder satisfaction and CSR, UNB is aware that the future holds many challenges for the UAE’s established financial institutions. As the nation looks to further diversify its economy and prioritise non-oil sectors, technology is set to revolutionise the way we do business in the UAE. The country’s economy is due to undergo a significant technological transformation over the next five to 10 years, with a rapid uptake of artificial intelligence (AI) and robotics across the nation’s flourishing domestic sectors. These new technologies will undoubtedly begin to change the face of the UAE’s banking sector, and the nation’s financial institutions must keep up with these technological transformations if they wish to remain relevant in the digital age.

At UNB, we understand that technological innovation is the key to our future success, and we have therefore made digitalisation a key component of our mid-to-long-term strategy. In order to adapt to our customers’ rapidly evolving tastes and demands for innovative digital products, we are now focusing on expanding our AI technology and robotics capabilities – from voice biometrics to the state-of-the-art online banking platform. With this digitalisation drive, we hope to enhance the customer experience through a range of practical and original digital solutions. Furthermore, as technology continues to reshape banking across the GCC, our digitalisation initiative is set to aid our vision of expanding our international footprint in the region, attracting tech-savvy clients from around the Arabian Gulf.

From technological innovation to ground-breaking CSR initiatives, UNB is fully committed to creating a brighter future for the UAE. As well as meeting the needs of our customers, staff and stakeholders, we are dedicated to effecting positive change in the communities we serve. Thanks to this unique, caring vision, UNB has established itself as one of the leading banks in the UAE’s rapidly evolving and dynamic financial market.

Institutional investors sue 16 banks in US over currency manipulation

Posted on by Max Tomlin

A group of institutional investors, which includes BlackRock and Allianz, has sued 16 major banks in US district court for allegedly rigging Forex currency markets.

The banks stand accused of violating US antitrust laws by conspiring to rig currency benchmarks, including the WM/Reuters closing rates, for their own benefit by sharing confidential client orders and trading positions.

The banks stand accused of violating US antitrust laws by conspiring to rig currency benchmarks

The manipulation reportedly took place in chat-rooms such as ‘the cartel’ and ‘the mafia’. Traders used coded language including ‘banging the close’ and ‘painting the screen’ to conceal their illegitimate activities.

The banks named in the case are: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan Chase, Morgan Stanley, Japan’s MUFG Bank, Royal Bank of Canada, Royal Bank of Scotland, Sociète Genérale, Standard Chartered and UBS.

The complaint, which stretches over 221 pages, states that banks “injured” plaintiffs by “colluding to manipulate FX prices, benchmarks and bid/ask spread”. This had the effect of restricting trade, decreasing competition and artificially increasing prices, according to the papers.

Norway’s central bank Norges Bank and public pension fund California State Teachers’ Retirement System are also among the plaintiffs. The lawsuit was filed on November 8 on behalf of the group by law firm Quinn Emanuel Urquhart & Sullivan.

This case is the latest in a string of global litigation relating to rigging of the $5.1trn-a-day foreign exchange currency market. 15 of the 16 banks named have already settled to the tune of $2.31bn with various individual investors and governmental bodies in the US. The largest individual settlement so far topped $402m, paid by Citigroup.

Worldwide, over $10bn of fines have been issued across several banks, and traders from Barclays, RBS, JP Morgan and Citi have been convicted of currency rigging.

Lawyers for the plaintiffs said in a statement: “This lawsuit comes on the heels of investigations by governmental regulators from around the globe, including the US Department of Justice, the UK Financial Conduct Authority, the European Commission, as well as authorities in Asia, Switzerland, and South Africa.”

The plaintiffs in this case have elected to file their own individual lawsuit against the banks, rather than participate in national litigation, in the hope that they will recover more funds. This lawsuit solely relates to the banks’ dealings in the US; many of the plaintiffs also plan to pursue litigation in London for currency manipulation in Europe, according to the complaint.

“The European Commission is expected to impose further substantial fines when it concludes its investigation, which is expected to happen this year,” the plaintiffs’ legal counsel added.

US midterm results spark positive reactions from global markets

Posted on by Max Tomlin

Global markets cheered as midterm election results demonstrated the restoration of checks and balances in the US Government. Democrats took control of the House of Representatives, gaining 26 seats, but Republicans consolidated their hold on the Senate with a two-seat gain.

The ‘blue wave’ within the House will have significant implications, as it will make it near impossible for the US president to push through controversial fiscal policies

European markets have reacted positively to the results, with London’s FTSE 100 index, Germany’s DAX and France’s CAC 40 all up more than one percent in early trading. Both the euro and the pound also posted gains this morning. Asian shares were largely flat as the election results came in, but gains are expected when markets reopen.

The division of Congress is likely to lead to a period of government inactivity, as policies become more difficult to pass and debate becomes more drawn out. This will give markets a chance to recover after a tumultuous October, which saw tech firms such as Amazon and Netflix lose 20 percent of their value. Key US indexes also experienced dramatic dips, with NASDAQ falling nine percent, the DOW shedding 1,300 points, and the S&P 500 experiencing its worst month since September 2011.

“A divided Federal government could actually be the ideal outcome for corporate America. They’ve had a bumper tax cut from Donald Trump, and congressional gridlock from here should mean business can get on with things without too much political interference,” said Nicholas Hyett, an equity analyst at investment firm Hargreaves Lansdown.

The ‘blue wave’ within the House will have significant implications for Trump, as it will make it near impossible for the US president to push through some of his more controversial fiscal policies on trade. Trump’s foreign policy stance is likely to be scrutinised, particularly with regards to the on-going trade war with China. In September, the White House imposed tariffs of 10 percent on $200bn of Chinese goods, which is set to increase to 25 percent by the end of the year if a deal is not reached. Beijing responded by imposing tariffs on $60bn of US goods. The two nations are now locked in a stalemate ahead of the G20 negotiations at the end of November.

Alec Young, Managing Director of Global Market Research at FTSE Russell, believes that the election results may increase the odds of a US-China trade deal. “With President Trump now less likely to pass economically stimulative legislation thanks to the Republican loss of the house, he is more likely to double down on ensuring a trade deal with China,” Young told World Finance. “Trump will want to ensure economic stimulus heading into his re-election in 2020 and trade is a great way to do that.”

A softened trade strategy would also be good news for Asian markets, which collapsed amid the conflict. The Shanghai Composite lost eight percent in October, and the IMF downgraded China’s economic outlook from 6.6 percent to 6.2 percent growth for 2019. An end to the tensions would also allow the US to focus on its own economic growth, rather than concentrating attention on strained international relations.

A blue House of Representatives could prove positive for national infrastructure, as Democrats in particular are keen to push for greater spending on machinery manufacturing, steel producers and oil and gas providers. HSBC chief US economist Kevin Logan wrote in a note in October: “Republicans have generally opposed Democratic plans on the issue, but President Trump has expressed support for infrastructure spending and might be willing to help.” Shares in major steel manufacturer Nucor and industrial conglomerate Honeywell both rose 0.1 percent in overnight trading, with further gains expected when markets open.

The greatest source of relief is likely to have come from the accuracy of polling.

According to a Morgan Stanley note seen by World Finance, “the only surprise is the lack of one for investors conditioned to expect it after Brexit and 2016”. Pre-vote polling surrounding both of those events turned out to be spectacularly inaccurate, causing market hysteria and damaging losses. After such turbulence, both in long-term geopolitical events and recent market activity, many will be reassured by the prospect of a return to stability.

The Brightline Initiative is exploring how humans can thrive in the digital age

Posted on by Max Tomlin

In the 1970s, there was talk of an ‘age of technology’, in which work would be all but eliminated and people would live in comfort while mundane tasks were completed by machines. But this life of leisure never arrived. Indeed, what is interesting is that most people are still working long hours; according to a 2015 study by the Bureau of Labour Statistics, people in the US work an average of 1,800 hours per year, with many forced to take on two jobs or work in excess of 70 hours a week.

The challenge is to understand the potential for technology to reshape businesses and to introduce the right technologies at the right time

There is an array of new technologies having an impact on the workplace and the nature of work today – such as artificial intelligence (AI), blockchain and robotics – but we are still figuring out how humans can excel in the technological age. How we maximise technology for the benefit of humanity – and the betterment of our daily lives – is a question that is still in the process of being answered.

Technology’s transformative effect
In recent years, the initial reaction to new technologies has been one of fear. There has been talk of hundreds of thousands of jobs simply disappearing as they fall victim to automation. However, this belief underestimates a number of things. First, work has always been in a state of flux; where people work and how they work is constantly changing. Think of how the advent of the internet has changed the nature of work. The organisations people work for and the environments in which they work have changed, too. Second, people are highly adaptable; individuals and organisations pick and choose from the technologies at their disposal. The challenge is to know enough about the available technologies to make the best selection for your situation both now and in the future.

59%

of leaders acknowledge a gap between their strategy design and implementation

Undoubtedly, the future of work will be different. Decisions will be made and strategies created in incredibly information-rich environments. In the past, having the facts at your fingertips was difficult work – numbers were hard won. Now, thanks to big data analytics and various other technologies, a huge amount of data is at our disposal. How to use it wisely has become the next big question.

Leaders involved in strategic changes should consider three insights. First, humans will always be in control. No matter how advanced the technology is, we will still have humans behind it. The number one barrier in strategy implementation is cultural attitudes, not the lack of technology applied in strategic initiatives. Second, technology is an enabler. In many ways it helps humans to answer questions faster and more effectively, but humans are the ones thinking and asking the right questions in the first place. Third, organisations and leaders should focus on discussing how to become better at strategy implementation, and choose technologies wisely for every condition and challenge they face.

Embracing tech potential
But how can executives be sure to implement successful strategies around the role of technologies like AI and robots in the workplace? They can never be 100 percent sure, but they have to ask whether any particular technology will improve individual and organisational performance. Will it make things better today or tomorrow? If it won’t, why are they using it?

At the same time, executives have to be open minded. Business history is littered with the remains of corporations that refused to embrace new technologies as soon as they emerged – and paid the price. Executives need to understand what technology might mean for their companies and for those who work with them. They need to make informed decisions – and that is harder than it seems.

For instance, sometimes it is not the first to embrace or understand the technology that wins, but the one capable of bringing the technology to the mass market or embedding it in their products with the quality and features customers want. Amazon wasn’t the first online retailer, but it was the first to really understand the potential of the internet and make it accessible.

So the challenge for executives is to understand the potential for technology to reshape their businesses and then to introduce the right technologies at the right time.

Clearly, technology is going to take a leading role in things like gathering market intelligence. This is already pretty well established in many companies. But it is also increasingly clear that there are areas where technology simply cannot yet play a role. The clearest area is that of judgement. Executives now make decisions based on reams of fantastic data, but they still need to be able to sort the wheat from the chaff; they need to be able to make the right call.

Look at sport, for example. A modern football coach has a lot of data about the fitness of their players: whether they kick the ball more with one foot, the areas of the pitch where they make the biggest difference, and so on. But when losing by one goal to nil with five minutes left, a coach has to instantly gauge who is the most tired, which player appears injured, what formation is now needed, among other things. All the data in the world is not going to help; the coach has to reach a judgement and make the right decision fast.

Other necessary skills and areas where robots might not be as good as humans are creativity, empathy and planning. All of these are essential for strategic thinking and implementation. Strategy implementers themselves cannot be automated or replaced by a machine or algorithm.

The key to implementation
Most strategic initiatives fail because of flawed implementation, resulting in a waste of both time and resources. The dynamic interplay between strategy design and delivery starts at the moment an organisation defines its strategic goals and investments. Most leaders appear to understand the importance of implementation and acknowledge that they need to upgrade their delivery capabilities.

At least 59 percent of respondents to the most recent Economist Intelligence Unit (EIU) survey, which was conducted in partnership with the Brightline Initiative, acknowledged a gap between their strategy design and implementation, and recognised its negative impact on organisational effectiveness. That is barely an improvement on the 2013 EIU survey, in which 61 percent of respondents admitted to performance-sapping shortfalls in implementation.

There is, however, no single true path to implementation excellence. That is because there are several frameworks for strategy design and implementation, and every organisation needs to craft its own recipe for strategic success. We believe this recipe will be more effective when it adheres to a set of core principles.

Getting things done is hard work. It requires constant communication, focus, transparency, honesty, feedback and much more. But fundamentally it is about people – bringing the best possible people to the task and maintaining their motivation and enthusiasm to promote team engagement and collaboration. Technology can help here; repetitive tasks that do not require strategic thinking, creativity, management or empathy can be automated.

For instance, executives and their teams usually spend a great deal of time and energy preparing status reports, as well as analysing their strategic initiative programmes and projects. While finding, compiling and grouping that data can be automated and perfected by machines and algorithms, the most critical part – the strategic insights and decisions – will be based on the judgements and contributions of humans.

Enduring human qualities
In a world where humans will have machines as co-workers, Brightline’s mission remains as relevant as ever. We develop and provide a holistic knowledge and networking platform that delivers solutions and insights to successfully bridge the expensive and unproductive gap between strategy design and delivery.

All the technology in the world does not necessarily mean that strategy design and delivery will become effectively aligned or completely automated. Technology only gets you so far.

“The reason strategy execution is often glossed over by even the most astute strategy consultants is because it’s not a strategy challenge – it’s a human behaviour one,” argued Peter Bregman in a Harvard Business Review article, titled Execution is a People Problem, Not a Strategy Problem. “To deliver stellar results, people need to be hyper-aligned and laser-focused on the highest-impact actions that will drive the organisation’s most important outcomes. But even in well-run, stable organisations, people are misaligned, too broadly focused and working at cross-purposes.”

For example, Brightline’s sixth Guiding Principle is to “promote team engagement and effective cross-business cooperation”. Focusing on gaining genuine buy-in from middle and line managers by engaging them as strategy champions requires empathy, communication and planning – all human traits.

Technology presents huge leadership challenges, as well as great opportunities. It allows leaders to make decisions based on clear evidence and communicate with colleagues 24/7. But at the heart of leadership are human factors such as trust, empathy and a sense of community, all of which are essential for leaders in the age of technology.

UOB Asset Management Thailand is setting the standard by prioritising sustainability

Posted on by Max Tomlin

Thailand has quickly progressed from a low-income country to an upper-income one, with citizens experiencing declining poverty, increasing levels of educational attainment and rapid economic growth over the past few decades. Tourism and manufacturing exports have played a significant role in the country’s success story, but the financial sector has also proven to be important. UOB Asset Management Thailand (UOBAM Thailand) is one of the industry’s leading lights.

In an effort to capture a larger online customer base through a first-mover advantage, the financial sector has begun to offer an expanded suite of digital products and services

With more than 20 years of experience, UOBAM Thailand advises its clients to carefully assess wider economic conditions before committing to an investment. It continues to seek innovative investments across different asset classes in line with its active investment strategy by exploring new fund ideas that are appropriate for different market cycles. So far, the asset management firm has established a variety of funds – including foreign investment funds – which have been launched to capitalise on income trends and investment opportunities. For example, in 2017, UOBAM Thailand also launched a United Global Income Strategic Fund for retail investors seeking a steady interest income and a diverse portfolio of fixed-income investments, including mortgage-backed securities and asset-backed securities.

Furthermore, UOBAM Thailand’s United Fund-Linked Complex Return (UFLINK) enhances returns by investing in options connected to PIMCO’s Global Investors Series income fund. UFLINK is the first fund in Thailand to enhance returns on fixed-income investment through a derivative instrument, and has successfully raised the fund size to $147.25m. At the end of 2017, UOBAM Thailand managed to grow its business – particularly in the areas of mutual funds, private funds and provident funds – to reach assets under management (AUM) of $8.6bn. World Finance spoke to Vana Bulbon, CEO of UOBAM Thailand, about the company’s success so far and what the future holds for Thailand’s financial services sector.

UOBAM Thailand has launched a number of funds recently. What new opportunities will they bring to clients?
UOBAM Thailand is always monitoring the market so we can foresee upcoming investment opportunities and identify innovative investment products for our clients. For instance, although the market has exhibited a measure of volatility this year, we have launched the United Global Equity Absolute Return Fund (UGEAR) to enable less risk-averse clients to make the most of these market conditions. UGEAR is also the first absolute return, long/short strategy mutual fund in Thailand to offer retail clients who invest over THB 1m ($30,000) life and health insurance benefits from Prudential Life Assurance (Thailand). At UOBAM Thailand, we believe there’s a lot of opportunity in every market situation.

$8.6bn

UOBAM Thailand’s total AUM

15,000+

Number of UOBAM Invest downloads (first six months)

How does UOBAM Thailand help to promote sustainable investing?
At UOBAM Thailand, we employ a fund management team with more than 20 years of investment experience to closely monitor market conditions and offer the right investment recommendations to our clients. We routinely encourage and recommend that our clients plan their investments for the long term. We have designed our investment strategies to ensure that our clients’ portfolios are accompanied by a level of risk that they are comfortable with. We also prioritise investment schemes that will have a long-term positive impact on the environment and wider society.

How has the asset management market in Thailand changed in the years that UOBAM Thailand has been operating?
In recent years, Thailand has witnessed an increasing number of users accessing the web, primarily via their smartphones. In an effort to capture a larger online customer base through a first-mover advantage, the financial sector has recognised these developments and begun to offer an expanded suite of digital products and services. This includes the introduction of online and mobile banking platforms, which have proliferated as Thai consumers have become more familiar with the innovative trends brought about by digitalisation, such as cashless payments.

The UOBAM Invest mobile app was successfully launched in November 2017 as an online digital investment advisory service for retail investors in Thailand. The app offers an advisory function, which creates a portfolio allocation suited to a client’s desired level of risk and is based on a proprietary investment tool. Clients can buy and track their investments, as well as update their personal information, 24 hours a day.

UOBAM Invest was downloaded more than 15,000 times on both iOS and Android systems during the six-month period following its launch. The application has garnered positive reviews, with transaction numbers and AUM having both grown as a result of the mobile platform. UOBAM Invest has outshone its competitors, with clients now gaining access to real-time alerts that provide updates on their funds, as well as periodic overviews of the market and fund investment strategies.

How does UOBAM Invest help Thailand’s retail investors?
UOBAM Invest is the first asset management mobile application in Thailand with full functionality regarding mutual and pension funds. The interactive and user-friendly app essentially allows clients to conduct transactions more easily through multichannel payments. In addition, the foreign investment fund calendar has become a popular tool for clients wanting to follow the progress of their funds. UOBAM Invest delivers prompt and functional asset management advisory services. It is designed to serve retail clients and savvy digital investors by enhancing the clients’ investment experience through mobile trading.

The app provides features that complement a digital lifestyle. This includes a portfolio recommendation tool, a profit and loss tracker, and a multi-method payment channel that includes direct debits, online payments and credit cards from six major banks in Thailand. An interactive access feature keeps clients engaged with fund information, net asset value movements and holiday notification updates associated with foreign funds.

Corporate governance and social responsibility are important values for modern businesses. In what ways does UOBAM Thailand support this?
One of the key milestones in the mutual fund business was the launch of a new fund with tax benefits – the Good Corporate Governance Long Term Equity Fund (CG-LTF). The fund mainly invests in listed companies with good corporate governance and sustainable growth potential. With profound investment management expertise, CG-LTF has recently been ranked as the best performing fund among 62 long-term equity funds for its five and 10-year track records, and was given a four-star rating by Morningstar Thailand. We also provide our Corporate Good Governance Retirement Mutual Fund for retirement planning proposes.

Moreover, we recently launched the United Thai Equity CG Fund (UTHAICG), which invests in Thai-listed companies that have been awarded a corporate governance rating of four or above by the Thai Institute of Directors and have been certified by the Private Sector Collective Action Coalition Against Corruption. The launch of UTHAICG is part of UOBAM Thailand’s participation in the Association of Investment Management Companies’ campaign to promote sustainable investing. The campaign also aims to encourage listed companies to improve their corporate governance and social responsibility. Therefore, UOBAM Thailand has launched the fund in order to ramp up investment in stocks that promote good corporate governance.

Regulations are forever changing in the financial sector. How does UOBAM Thailand ensure it always meets legal requirements?
At UOBAM Thailand, we place a strong emphasis on risk management and ensure that all company activities adhere to in-house regulations. The company’s compliance and risk management programme covers not only the legal requirements encompassing the business, but also best practices regarding the internal development of business systems, as well as the education, training, monitoring and discipline of our employees. By meeting our reporting requirements and valuing transparency, we are helping to create a more accountable and responsible investment climate in Thailand.

How important is customer satisfaction to UOBAM Thailand? How do you ensure that the highest possible standards are maintained in this area?
We continue to place a great deal of emphasis on customer satisfaction. We are constantly exploring new product distribution channels and investment innovations to ensure that our highly professional team delivers the excellent service that our customers deserve. Our business utilises knowledge sharing and cutting-edge technology to provide better returns for our shareholders, employees and the community.

Our efforts have resulted in UOBAM Thailand receiving a number of awards over the years and being recognised as one of Asia’s leading asset managers. We are uniquely positioned to provide a wide range of financial investment solutions to cover local and foreign investment. We have more than 20 years of experience investing in equities and fixed-income instruments across regional and global markets. Through our strong alliances, we offer a comprehensive suite of investment products to our clients, both individual and institutional.

What does UOBAM Thailand have in store for the future?
As market conditions are always changing, we will continue to use our in-house expertise to keep a close eye on developments and provide the best possible advice to our clients. We believe that our experience and knowledge means we can provide investment solutions to suit all market conditions. Also, UOBAM Thailand will continue on its digitalisation journey, offering customers the online and mobile solutions they need to stay informed and connected in the modern world of investing.

Eurobank is helping Greece’s SMEs thrive for the good of the whole nation’s economy

Posted on by Max Tomlin

SMEs are the backbone of the Greek economy, contributing 87 percent of the workforce and 73 percent of value added. After many years of economic crisis, the long-awaited rebound of the Greek economy now relies heavily on the activities of SMEs, the growth of which will reduce unemployment, increase private consumption and benefit the country’s GDP.

After many years of economic crisis, the long-awaited rebound of the Greek economy now relies heavily on the activities of SMEs

Nonetheless, Greek SMEs continue to face challenges, many of which intensified during the financial crash. Indeed, the recession affected SMEs far more severely than it did larger enterprises. Despite efforts to increase exports, the main activities of SMEs remain focused on domestic demand, which has unfortunately declined considerably in recent years.

In light of SMEs’ importance to the Greek economy, World Finance spoke with Iakovos Giannaklis, General Manager of Retail Banking at Eurobank, about the sector’s challenges and how financial partners can help to overcome them. Eurobank was named best retail bank in Greece in the World Finance Banking Awards 2018, and has extensive expertise in supporting SMEs.

What are the most pressing challenges facing SMEs in the Greek economy?
Competitiveness in the EU is high, with many businesses bringing agile, tech-based solutions to the market. Traditionally, Greek SMEs are family-run businesses, operating with high flexibility and low productivity. Due to their size and structure, they cannot afford to employ specialised staff in key positions. Meanwhile, the employment of digitalisation, modern management models and advanced banking solutions, all of which enhance operational efficiency, remains low among SMEs. At present, product output lacks technological content and, subsequently, added value. Finally, there is not a strong culture of business collaborations, and clustering remains fragmented, thus limiting potential success in big export markets.

SMEs that managed to survive the crisis are a brilliant example of creativity, tenacity and business instinct, leading us to be confident that they will thrive as the Greek economy bounces back.

What role does Eurobank play in the support of Greek SMEs?
At Eurobank, we believe each customer is unique and has their own needs. Our small-business banking managers approach every client profile by responding to their individual requirements in order to develop a long-lasting and mutually beneficial relationship. Having consolidated high-quality client relations with the implementation of a horizontal service model, we have developed a concise strategy to help businesses overcome their biggest challenges.

We provide requisite financing for working capital and investments in favourable terms. We also offer a holistic solution to businesses eligible for funding within the National Strategic Reference Framework.

We promote extroversion; even though the number of exporting businesses has risen in recent years, the overall percentage remains extremely low (see Fig 1). We therefore need to encourage the business community to collaborate, participate in networks and look for new opportunities abroad. Finally, we encourage technological advancement through innovative solutions.

In terms of products and services, we provide an integrated approach, offering tailor-made solutions to suit every client’s needs. Eurobank’s offering includes a wide range of specialised products. Taking advantage of state-of-the-art technology is also essential, so we offer the innovative ‘v-banking’ service – a first in Greece – which allows customers to communicate digitally with their business banking consultant.

What financial tools does Eurobank offer to SMEs to boost their competitiveness?
At Eurobank, we always strive to ensure that business financing has as few barriers as possible by approving seven out of every 10 requests. Our commitment is that we will find a way to fund all business plans with substance, prospects and a strong foundation. Meanwhile, to ensure low-interest financing, we offer programmes through collaborative agreements with national, European and international institutions, such as the European Investment Fund, the European Bank for Reconstruction and Development, the International Finance Corporation, the European Investment Bank and the Hellenic Fund for Entrepreneurship and Development.

87%

of Greece’s jobs are in SMEs

73%

of value added comes from SMEs

Furthermore, the relationship managers in Eurobank’s small-business banking division use tools such as the Business Check-Up, which allow them to determine a client’s strengths and weaknesses, as well as areas for improvement in comparison to their local competition. Having made this assessment, we then recommend the most appropriate products and services in order to manage coverage and securitisation against any operational risks arising from the client’s business activities. Essentially, we help businesses identify the banking products that cover all of their needs. We even compare the company with the rest of the sector in terms of key performance indicators.

Finally, capitalising on our extensive experience as a servicing bank in previous cycles, we have developed a tailored solution for companies eligible to receive funding through the National Strategic Reference Framework. We offer free eligibility checks, which can be carried out in one of our branches or online, as well as financing for equity contributions and the option to collaborate with a leading financial consultancy firm at a discount.

What non-banking services does Eurobank provide?
Eurobank helps SMEs to counterbalance their lack of specialised staff by offering non-banking services in key management positions. The bank identifies the areas in which its clients require specialised staff and selects the most appropriate partners to support their ongoing growth. Eurobank uses its bargaining power to secure discounts on such partnerships.

The bank offers non-banking services in the tourism sector too, including: discounts on digital media, website and e-commerce development costs; revenue management consulting services for hotels; specialised training programmes for the hospitality industry, which can be taught both online and in person; and credit checking services on foreign tour operators for hotels and travel companies.

Following the success of such non-banking services, Eurobank plans to expand its offering.

What steps is Eurobank taking to help develop the export sector?
For years, Eurobank has invested in the export sector. Success in this extremely competitive environment requires a long-term, consistent and collective effort. We support SMEs seeking to expand their activities abroad. Our main vehicle for this is Exportgate, an electronic gate to global trade and business networking. This is further enhanced by Eurobank’s strategic agreement with Banco Santander as part of the Spanish bank’s Trade Club alliance.

Furthermore, in collaboration with a number of exporters’ associations, we organise Go International trade missions, which are structured business-to-business meetings that bring exporters and potential buyers together. A Go International trade mission will take place this November in Thessaloniki.

In terms of banking products, we offer exporters an array of financial tools to support them in every step of their transaction cycle. Eurobank always aims to offer the most cutting-edge trade and supply chain solutions. It’s also worth mentioning that the bank was recently named Best Trade Finance Provider, Greece, in the Global Finance 2018 awards.

How is Eurobank contributing to the digitalisation of Greek SMEs?
Eurobank has made a strategic choice to embrace digital technology in a bid to become the premier digital retail bank in Greece. We aim to exploit the vast opportunities offered by technology and innovation to ensure absolute efficiency and an omnichannel experience for our customers. At the same time, it is our priority to encourage entrepreneurs to upgrade their businesses by offering simple, user-friendly digital solutions that will make a significant difference in their everyday activities.

In 2017, we launched v-banking, a breakthrough alternative service channel, which offers a full banking experience through video calls. This innovative service channel assigns the client a relationship manager whom they can contact as often as needed, while also ensuring security, speed and technical functions to simplify everyday transactions such as cashing cheques and making loan applications. Companies that do not wish to visit physical branches can complete all of their banking transactions through this new channel.